How Will Brexit Affect the British People and the Financial Markets?

The British people voted on Friday 24, June 2016 to LEAVE the EU. This vote will have several effects on the lives of the British people both at home and those based in other EU countries. How this decision to leave the EU affects the British people especially in the future will depend on the terms Britain and the other EU members will agree on when the treaties that govern members of EU no longer apply to Britain.

The Immediate Effects of Britain’s Vote to Exit EU

Alexander, a Manchester based accountancy firm have suggested that the vote to leave EU on Friday will have a huge knock of effect to the country’s finances. Notably the British pound fell by a record 10% against the US dollar in a single day on Friday. The cause of this fall of the sterling against the dollar is due to the uncertainty this vote created in the mind of investors as they don’t know how this decision by Britain to quit EU will affect trade between Britain and the rest of EU.

The result of this fall in sterling against the dollar will mean British importers have to spend more on raw materials and finished goods from the US and other countries. This will lead to increase in the cost production of these businesses, and they may tend to transfer this increase in cost to the final consumers by increasing the price of the finished goods especially if the goods in concern have an inelastic demand. This may force some consumers to look for alternative goods from other EU countries especially as there will be no trade barriers for now till Britain deal with the terms of its departure which might take about two years.

This fall in the sterling against the dollar can also encourage tourists from the US and other countries to visit the UK because the exchange rate will provide tourists with more sterling to spend on vacation in the UK or reduce the amount of dollars needed by a US tourist to visit Britain. The same amount of dollar held by a tourist in Britain will be able to pay for more services in Britain thanks to the fall in sterling against the dollar. This may boost the tourism sector in Britain.

How Brexit Vote will Affect Britain in the Long Run

Britain’s exit from EU will take a two years process and during this period, Britain will still be under EU law and Britain would not take part in any EU decision making during this period. This will, therefore, mean Britain will be forced within this time to accept consequences of decisions taken by other countries even if they are not favourable to the British people.

Other things Britain has to negotiate with the other EU members are financial regulations, trade tariffs and rights of the movement of UK nationals and EU citizens between the UK the rest of the EU. How these will affect the British people will depend on the terms of the agreement between Britain and EU.

The vote to leave EU by Britain has aroused desire for a referendum in other EU countries as the French National Front leader Marine Le Pen, and Dutch Far-Right leader Geert Wilders are urging their respective countries also to hold a referendum. The U.S Presidential candidate Donald Trump also referred to the vote as a ‘great thing’. With such call for referendums and statement from a potential U.S future president, one will no doubt anticipate the other EU members to be hard with Britain to discourage such moves by other nations to leave the union. This is more likely to happen because all of the other EU countries have a right to veto the decision on the terms. This will go further to create uncertainty to investors until the final terms are known.

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